360 Security Technology Inc(601360) released the annual report of 2021, the leading enterprise of network security. The annual revenue was 10.89 billion yuan (- 6.3%), the net profit attributable to the parent company was 900 million yuan (- 69.0%), the non net profit deducted was 610 million yuan (- 76.1%), and the net operating cash flow was 170 million yuan (- 91.5%).
The revenue structure was optimized and the proportion of security business was further increased. (1) 21q4 achieved revenue of 2.35 billion (- 35.5%) and net profit of – 100 million (- 108.4%) in a single quarter. The decrease in revenue in 2021 was mainly due to the year-on-year decrease of 16.1% in Internet advertising and service business revenue. At the same time, the company made great efforts to build sales capacity, increased marketing investment and sales team size, and increased sales and management expenses by 34.5% to 2.23 billion yuan and 17.2% to 770 million yuan respectively year-on-year. During the reporting period, the company made provision for impairment of 190 million yuan and 180 million yuan respectively for the long-term equity investment of Master Lu and colour life, which had a short-term impact on the performance; (2) The overall revenue structure of the company has been optimized, and the transformation of security business to government and enterprises has achieved results. During the reporting period, the company’s “safety and other” business revenue was 1.38 billion yuan, with a year-on-year increase of 70.9% and a gross profit margin of 67.3%. While maintaining a high gross profit margin, the company maintained a high growth momentum, and the safety business has become the main driving point of the company’s performance growth. Internet advertising and value-added services maintained a high gross profit margin of 70.2% and 83.0% respectively, keeping the overall gross profit level of the company at 62.3% (- 0.2pct); (3) The structure of the R & D team was optimized and the efficiency was improved. At the end of the reporting period, the number of the company’s R & D team was controlled at about 4000, and the R & D expenses increased slightly (the growth rate was less than the growth rate of security business revenue).
Build a complete product matrix to improve the breadth and height of security business. (1) Relying on years of accumulation in the field of network security, the company launched the “security brain” and related capability system. By the end of the reporting period, the company had built a complete security product matrix centered on the “security brain” and covering security infrastructure components, information innovation products, security management, terminal security and other fields. During the reporting period, relevant products were enabled through “cloud security brain” and “core security brain”, and the overall customer coverage of the company’s security business was significantly improved. Nearly 2000 customers were newly signed, covering more than 90% of central ministries and commissions, 80% of central enterprises and 95% of large financial institutions, and completing the full coverage of key customers such as four major banks and three major operators; (2) During the reporting period, the company led and participated in the release of nearly 40 safety related standards, highlighting the industry influence of the company in related fields. Product richness and technical threshold can effectively support the company’s strategic transformation to the field of digital security.
Multi means to cope with the pressure of Internet business and maintain output capacity. (1) During the reporting period, the formal implementation of the personal information protection law had a great impact on the company’s business model of accurate advertisement delivery based on algorithm, and the overall growth rate of Internet advertising revenue in China continued to slow down. The company responded to the adverse changes in the Internet advertising industry by establishing a multi screen complete ecosystem and innovating the advertising business model. The annual revenue was 6.31 billion yuan (- 16.1%), and the gross profit margin remained at 70.2%, unchanged year-on-year; (2) In 2021, the suspension of the release of the game version number and the further increase of the provisions on the prevention of addiction of minors also had a great impact on the company’s Internet value-added business. The company maintained the stability of Internet value-added business through the product portfolio of “hand + page + end” games, achieved a revenue of 1.1 billion yuan (- 2.7%) and a gross profit margin of 83.0% (- 2.9pct). As the company’s main grain production business, the stable cash flow of Internet business is an important guarantee for the company’s strategic transformation and new technology research and development.
Investment suggestion: optimistic about the growth certainty of the network security industry, it is recommended to pay attention to the leading enterprise 360 Security Technology Inc(601360) .
Risk warning: the implementation of the policy is less than expected; Industry competition intensifies
